Saturday, July 10, 2010

DTN News: Comac - China's Challenge To Airbus And Boeing*Countries that hope to build national aviation industries can learn from Beijing's fast-moving program to develop a made-in-China jetSource: DTN News / Businessweek.com By Anil Gupta and Haiyan Wang
(NSI News Source Info) TORONTO, Canada - July 11, 2010: China is fast learning the ABCs of aircraft manufacturing: A as in Airbus (EAD:FP), B as in Boeing (BA), and C as in the Commercial Aircraft Corp. of China, or Comac. Approved in February 2007 by the Stat

e Council—China's cabinet—Comac's mission is to produce homegrown jumbo jets and by 2020 to become the third major player in the worldwide commercial aircraft industry.
If all goes according to plan, Comac's first product, the C919 (a single-aisle plane with over 150 seats) could start competing with the A320 and B737 by the second half of the current decade. These types of planes constitute the single largest-selling category of commercial aircraft. Over the next 20 years, China is expected to buy about 100 such planes every year. Not coincidentally, Comac has indicated that after the initial ramp-up period, it expects to produce about 100 C919s annually and help China end its reliance on imported airplanes.
Comac represents the epitome of China's ambition to create national champions that will go on to become major global competitors. Large commercial planes constitute not only a sizable market (Boeing's revenues in 2009 were $69 billion) but also one with very high entry barriers. Chinese companies trying to enter other tech industries such as biotech, telecommunications equipment, supercomputers, software, and semiconductors face a highly contested terrain with multiple competitors and an ongoing stream of new entrants. In contrast, the jumbo jet industry has not seen a single new entrant other than Airbus over the last 40 years. In fact, given the exit of such players as McDonnell Douglas and Lockheed Martin, the field has gotten smaller. Large commercial aircraft are not merely technologically complex on multiple fronts, they also present extreme complexity in manufacturing and are sold to a very conservative set of customers—passenger airlines. Unlike a supercomputer or a telecom switch, the failure of a jumbo jet can literally kill hundreds of people and bring an airline to its knees.
Any success by Comac in realizing its mission would be a landmark development in China's rise as a technological superpower. Commercial aircraft constitute the single largest category of exports from the U.S. Over the next 20 years, China is destined to be the single largest market for such planes. Since Comac appears well on its way to a flying start, these principles could also serve as lessons for other countries with long-term ambitions to develop commercial aircraft industries.
Comac Stakes for key institutions
First, ensure that the new venture has adequate capital. Comac started out in 2008 with 19 billion yuan ($2.8 billion) in paid-up capital. A year later, it received a credit line of 30 billion yuan ($4.4 billion) from China's Bank of Communications. Combined, this adds up to over $7 billion in start-up funding for Comac alone, not including the capital base of subsystem suppliers such as AVIC (Aviation Industry Corp. of China), a big, state-owned enterprise involved in the production of military aircraft and smaller commercial planes. To put these numbers into perspective, Boeing spent an average of $3.9 billion annually on research and development during the last five years.

Second, co-opt key institutions by giving them a stake in the new venture. The 19 billion yuan paid-up capital in Comac included 6 billion from the central government; 5 billion from the Shanghai government; 5 billion from AVIC; and 1 billion each from Baosteel (600019:CH), China's leading steel producer; Chinalco (ACH), China's leading aluminum producer; and Sinochem (600500:CH), China's leading chemicals producer. Even though all of these entities are arms of the government, giving each a direct equity stake dramatically increases its incentives to collaborate enthusiastically and proactively, rather than reluctantly.
Third, accumulate technological capabilities through alliances with global technology leaders. Wu Guanghui, Comac's chief designer and deputy general manager, has been on record noting that, while Comac would source parts and components globally, the company would give priority to suppliers that set up joint ventures with Chinese partners. AVIC, the primary supplier of subsystems to Comac, has played a major role here. In June 2007, AVIC established a Tianjin-based joint venture with Airbus to undertake the final assembly of the European company's A320 planes. Last year, AVIC and Airbus formed a further joint venture to produce composite material parts for the A350; two with Goodrich (GR), one for landing gear and the other for nacelle (engine compartment) components; one with Nexcelle—itself a joint venture between GE (GE) and France's Safram—to manufacture engine nacelles and components; and one with GE to develop and bid on avionics for C919. Other corporations that have set up joint ventures in China to win agreements to supply Comac include Honeywell (HON), for auxiliary power units, and Parker Hannifin (PH), for fuel and hydraulic systems.
India should watch Comac develop
Fourth, if a joint venture with a key supplier appears impossible, go for direct sourcing from the world's technology leader. This has clearly been the case with C919's engines, the plane's most complex technological subsystem. Although AVIC has set up an aircraft engine subsidiary in Shanghai, it is a long way from developing the necessary technological capabilities. There also is no indication that any of the major suppliers of big aircraft engines—GE, Rolls Royce (RR/:LN), or Pratt & Whitney (UTX)—is willing to set up an engine joint venture in China. Faced with this reality, Comac has signed a direct-sourcing agreement with France's CFM International (a joint venture between GE and Safram) to provide LEAP-X turbofan engines for the C919. Comac and AVIC executives have noted, however, that they remain committed to building engine design and manufacturing capabilities in-house.
Fifth, leverage the state's control of domestic airlines to reduce market entry barriers, dramatically reducing commercial risk. Comac executives appear optimistic that by the end of 2010, they will have signed the first order to supply Chinese airlines with 100 airplanes.
It is clear that Comac represents a sophisticated and well-considered mix of state capitalism and market logic. While smaller countries would find it nearly impossible to match China's scale, financial muscle, and technological capabilities, a handful of the larger economies—such as India—may have the potential to do so. They should benefit from keeping track of how China did it.

*This article is being posted from Toronto, Canada By DTN News ~ Defense-Technology News, contact: dtnnews@ymail.comAnil K. Gupta (anil.gupta@insead.edu ) is the Insead Chaired Professor of Strategy at Insead. Haiyan Wang (hwang@chinaindiainstitute.com) is managing partner of the China India Institute and an Adjunct Professor of Strategy at Insead. They are the coauthors of Getting China and India Right (Wiley, 2009) and The Quest for Global Dominance (Wiley, 2008).

Related News

China's Large Passenger Jet Ready In Eight Years: Report
(NSI News Source Info) March 12, 2009: China's first large passenger jet will take off in about eight years and will be named C919, state media reported Saturday.
China is keen to cooperate with foreigners on the project, which is meant to rival Airbus and Boeing, Xinhua news agency said, citing the plane's chief designer Wu Guanghui.
"C (in C919) represents China as well as COMAC, the abbreviation for Commercial Aircraft Corporation of China," said Wu, according to Xinhua.
The first 9 in C919 was chosen because in Chinese the number sounds like a word that means "long time," while 19 reflects the fact that China's first large aircraft will have 190 seats, he said.
COMAC was set up in May last year, charged with developing a large aircraft that one day can compete with planes from Airbus and Boeing.
Wu said that the company will choose suppliers of engines, equipment, and materials through international bidding, and will encourage foreign suppliers to enter into partnership with Chinese manufacturers.
"We will choose foreign-manufactured products like engines at the beginning phase, but we will also independently do research and manufacturing work at the same time," he was quoted as saying by Xinhua.
Robust growth in China's aviation market in recent years has given rise to predictions that the nation will need more than 3,000 new aircraft in the coming two decades.

(NSI News Source Info) TORONTO, Canada - July 10, 2010: The US-based The Diplomat magazine and Jane's Defence Weekly in the UK published stories this month expressing concerns about the buildup of China's air force, respectively titled "China Air Force Steps it Up" and "Chinese military aircraft: up and coming."
So why the growing interest abroad in China's air force? Where do the concerns stem from?
The Global Times' correspondent, Sun Wei, conducted a question-and-answer session by e-mail Wednesday with Craig Caffrey (Caffrey), the author of "Chinese military aircraft: Up and coming."
GT: Why are you concerned about the Chinese air force in particular? The Diplomat magazine said China is "building a force that will be without rival in the Asia-Pacific." What do you think of such a comment?
Caffrey: China's emergence as a global power is one of the most important geo-political issues at present, and this process has a number of significant implications in the defense and security sector. The modernization of the Chinese air force is a key aspect of an ongoing improvement in the capabilities of the Chinese military.
My article's focus is on the key military aircraft programs that are central to this modernization process, within the military as a whole, and demonstrate the increasing capabilities of both the air force and the aerospace sectors in China.
There have been a number of key developments over the past few years, and the article aims to identify these developments and analyze their impact upon the programs themselves, the capability of the air force itself and, to a lesser extent, the impact upon the wider global defense aerospace market.
While it was a coincidence that The Diplomat article was published at roughly the same time as the Jane's article, this is certainly indicative of a growing interest in the modernization of the Chinese military over recent years.
I do not agree entirely with the statement above, as the US is well aware of the development process that the Chinese military has embarked upon. However, I do believe that the modernization of the Chinese air force will inevitably have an increasingly significant impact upon US defense policy and planning assumptions in the region.
With China retiring its large inventories of obsolete aircraft and replacing them with modern, highly capable combat aircraft, the Chinese air force is already one of the most capable air forces in the region. At present, though, the capability to project this power beyond its borders and throughout the region is extremely limited due to a lack of tanker and transport aircraft and basing outside of China.
GT: In your article, you said "Only the US and Russia provide a more comprehensive portfolio of domestically produced military aircraft." In Chinese eyes, however, Chinese aerospace manufacturing is still far behind the West. What do you think of the gaps?
Caffrey: I think the speed with which China has been able to indigenously produce modern combat aircraft with comparable capabilities to similar Western designs is extremely impressive, even if there are still a number of issues that need to be addressed.
If you consider that the air force is expecting the first flight of a 5th-generation combat aircraft to be achieved less than 10 years after the first indigenously produced fourth generation aircraft entered service, then the progress has been remarkable.
In terms of how this has been achieved, the scale of government investment in the sector has been hugely important, while the technical support offered by other countries, particularly Russia, has also been crucial. Reforms within the aerospace sector and the leveraging of techniques and expertise from the civil sector into the defense sector have also been important.
It is certainly true that the Chinese aerospace industry is significantly behind that of Europe or the US in terms of capability, but that does not detract from the speed with which it has been able to develop over recent years.
The key area where progress is required is in the production of aero-engines, where performance has perhaps been slightly disappointing over this period and has held up a number of programs. Until this can be rectified, China will remain reliant, at least to some extent, on external suppliers.
Further improvements with regards to systems integration, avionics, complex mission systems and the use of composite materials are also likely to be required if China is to truly compete in the global aerospace market.

GT: How do you evaluate the capability of the Chinese air force? What do you think of the level of their training, and their capability of cooperation with other combat arms, especially compared with China's neighboring countries?
Caffrey: As I mentioned in my answer to the first question, the Chinese air force is already highly capable, although there are obviously elements that can be improved upon. Power projection is one of the key deficiencies at present.
Progress appears to be being made in the quality of training and the ability to conduct joint operations, and there appears to be an increasing focus upon these aspects. However, these are certainly two areas in which the Chinese air force lags far behind other leading air forces, such as the US.
Another key aspect in this regard is a lack of operational experience that can be applied to improve training and tactics. I would say at present that the air force still needs to make significant progress in these elements if it is to be considered truly without rival in the Asia-Pacific.
GT: The air forces in the Asia-Pacific region have welcomed a booming update of military aircraft. To what degree do you think it is because of China?
Caffrey: I certainly think that the enhanced capabilities of the Chinese air force will increasingly factor into the modernization plans of other air forces in the region. However, to date, I think evidence of such a trend is limited.
Fighter programs are underway in Japan and South Korea; however, these new aircraft are being acquired to replace aging fleets rather than to defend against a perceived Chinese threat.
Having said that, if you look at the trend in Europe and the US, then the number of combat aircraft operated by their air forces has been steadily decreasing over the last decade, while in Asia this has been less pronounced. This again, though, has been influenced by a general improvement in the capabilities of air forces in the region rather than specifically in response to China.
If the Chinese air force continues to improve its capabilities at the pace it has done over the last decade, then there is certainly the potential for further sales of military aircraft to neighboring countries in response. However, this would likely have to be coupled with a deterioration of relations with Beijing or a perceived increase in the assertiveness of the Chinese military in the region.

*This article is being posted from Toronto, Canada By DTN News ~ Defense-Technology News, contact: dtnnews@ymail.comDisclaimer statement
Whilst every effort has been made to ensure the accuracy of the information supplied herein, DTN News ~ Defense-Technology News cannot be held responsible for any errors or omissions. Unless otherwise indicated, opinions expressed herein are those of the author of the page and do not necessarily represent the corporate views of DTN News ~ Defense-Technology News.

(NSI News Source Info) YAKAGHUND, Pakistan- July 10, 2010: The death toll from a suicide bombing and car bomb blast that devastated a Pakistani tribal town has soared to 102 in one of the country's deadliest attacks, officials said Saturday.

The explosions targeted a busy market in Yakaghund town in Pakistan's northwest tribal belt on Friday, destroying government buildings and shops and leaving victims buried under the rubble. Local administration chief Rasool Khan said the death toll had jumped to 102, after he and other officials had earlier put the number of dead at 65.
"Some bodies were recovered from the spot and some died in hospitals overnight," he told AFP.
Another local official, Mairaj Mohammad, confirmed the higher toll and said there were 98 people receiving treatment in different hospitals. "Some of them are in critical condition," he said.
It was the deadliest attack in Pakistan since a massive car bomb destroyed a market crowded with women and children in the northwestern city of Peshawar in October 2009, killing 125 people.
Khan said the toll could rise further as rescue work was underway to recover victims who are feared trapped under pulverised buildings.
Pakistani Taliban claimed responsibility for Friday's blasts, saying the target was a gathering of pro-government tribal elders.
Qari Ikramullah, a spokesman for Taliban militants in the region, said in a telephone call with AFP that the elders were meeting in an administrator's office and planning to raise a lashkar, or tribal force, to fight the Taliban.
"We will attack such gatherings in future also," he said.
A Taliban and Al-Qaeda-linked bombing spree across Pakistan has killed more than 3,500 people in three years since government troops besieged the radical Red Mosque in the capital Islamabad in July 2007.
Witnesses said the huge explosions Friday damaged an administration office, shops, a jail and other buildings in the small town not far from the border with Afghanistan, where 140,000 US-led foreign troops are fighting the Taliban.
The attack sent a pall of gloom over the town. Bodies wrapped in white shrouds were being brought to a local playground for funeral prayers, an AFP reporter saw.
At least 1,000 people gathered at a nearby graveyard where workers set about digging dozens of new graves.
"I lost two brothers, their bodies were found in pieces," 27-year-old drinks vendor Mohammad Siddiqullah told AFP after a burial ceremony.
Local official Mairaj Mohammad said more than 60 bodies were buried on Friday and around 30 were laid to rest on Saturday.
Islamist militant groups have carved out havens in the remote and craggy mountains of Pakistan's tribal belt which lies outside direct government control.
"The attack appears to be part of a sustained campaign to disrupt peace efforts in the region," said security analyst Imtiaz Gul, the author of a recently published book on the tribal region, "The Most Dangerous Place".
"There seems to be good coordination among forces, which are out to create instability and perpetrate violence".
The Islamic republic is on the frontline of the US war against Al-Qaeda, and the Pakistani military are bogged down fighting homegrown Taliban in the northwestern border areas.
Hugging the border with Afghanistan, where US and NATO allies are trying to end a nearly nine-year war, northwest Pakistan has suffered a wave of bombings causing mass casualties and insurgency, fanning fears about regional stability.
Pakistani leaders this week called for a landmark national conference to develop a strategy to counter the Islamist militant threat after a twin suicide attack killed 43 people at a shrine in Lahore on July 2.
Pakistani security forces have fought in the tribal belt and parts of the northwest for years, but deadly clashes are still largely a daily occurrence.

(NSI News Source Info) JERUSALEM, Israel - July 10, 2010: Intense diplomatic efforts have likely prevented a Libyan aid ship from trying to breach Israel's blockade of the Gaza Strip, the foreign ministry said on Saturday."Foreign Minister Avigdor Lieberman spoke several times in recent days with the foreign ministers of Greece and Moldova and reached understandings with them about dealing with the Libyan ship," a ministry statement said.

"The foreign ministry believes that due to these talks, the ship will not reach Gaza," the statement added.
A charity headed by Seif al-Islam Kadhafi, the son of Libyan leader Moamar Kadhafi who is widely seen as heir apparent, said on Friday it was sending an aid boat from Greece to Gaza.
Agents for the Moldova-flagged cargo ship Amalthea said the boat was expected to set sail from Lavrio, some 60 kilometres (37 miles) southeast of Athens.
The 92-metre (302-foot) freighter has a 12-man crew and will carry up to nine passengers, a representative of Piraeus-based agents Alpha Shipping said on Friday.
But Israeli officials said that Moldovan authorities had made contact with the captain of the ship who agreed to divert the cargo to the Egyptian port of El-Arish. They did not elaborate.
Meanwhile Israeli media on Saturday reported that Israel had asked the United Nations to stop the Libyan ship.
Israel's UN ambassador Gabriela Shalev sent a letter to UN chief Ban Ki-moon asking that the international community intervene to prevent the ship approaching Gaza, Haaretz newspaper reported on its website.
"Israel calls upon the international community to exert its influence on the government of Libya to demonstrate responsibility and prevent the ship from departing to the Gaza Strip," Haaretz quoted from the letter.
Shalev also warned in the letter that "Israel reserves the right under international law to prevent this ship from violating the existing naval blockade on the Gaza Strip."
The Tripoli-based Kadhafi International Charity and Development Association said the cargo ship was "loaded with about 2,000 tonnes of humanitarian aid in the form of foodstuff and medications."
The ship will also carry "a number of supporters who are keen on expressing solidarity with the Palestinian people in the plight amidst the siege imposed on Gaza," the organisation added in a statement.
On May 31, Israeli special forces stormed a flotilla of six ships carrying aid for the blockaded Gaza Strip, killing nine Turks on board the Turkish passenger ferry Mavi Marmara.
Israel says its commandos only used force to defend themselves after being ambushed.
Israel imposed the blockade in June 2006 after its soldier, Gilad Shalit, was captured by Gaza militants and tightened it a year later when Hamas seized power in the coastal strip.
In the wake of the May 31 incident, Israel has significantly eased the blockade, barring only arms and goods that could be used to create weapons or build fortifications, but it has maintained the naval blockade.